The Strategist

US, UK impose restrictions on M&A for foreign companies

05/22/2020 - 02:33

The US Senate unanimously spoke out in favor of a bill, which would make it difficult for some Chinese companies to place shares on exchanges in the United States. According to the paper, foreign companies whose shares are traded in the United States will be required to inform if the governments of certain countries own shares in them. At the same time, the British authorities are preparing a bill that protects British companies in difficult financial situations from being absorbed by foreign corporations. Recently, many countries, including Germany, France, and the EU as a whole, have introduced or are preparing to introduce rules to prevent acquisition of local companies by Chinese investors in times of crisis.

On Wednesday, the US Senate approved a bill, according to which foreign companies whose shares are traded on US exchanges will have to fulfill a number of requirements. This measure is expected to strengthen control over such companies and make their reporting more transparent. Among these requirements is the need to inform the US authorities that such a company is neither owned nor controlled by foreign governments.

Also, foreign companies trading in the United States will have to comply with the requirements applicable to US companies regarding the conduct of audits and other regulatory standards.
The bill was unanimously approved by the Senate, and now the House of Representatives will have to vote in its regard. In addition, it must be approved by US President Donald Trump.

Although this measure applies to all foreign corporations, it is directed primarily against Chinese companies. “Everyone else wants China to play by the rules,” said John Kennedy, Senator for the Republican Party and one of the authors of the bill. “There are many markets around the world open to unscrupulous players, but America cannot afford to be one of them.” “China is on the path to dominance and is cheating at every turn.” Recently it was reported that the NASDAQ is going to introduce new restrictions that will make it difficult to conduct IPOs for Chinese companies. It is argued that the new rules are mainly due to concerns about the lack of transparency in the accounting of some Chinese IPO applicants and close ties with influential insiders.

One of the reasons for this was the situation around the Chinese company Luckin Coffee. Last year it held an IPO in the USA, and in April announced that its employees had fabricated sales reports for $ 310 million.

Increasingly more countries are taking or preparing to take certain measures aimed at containing Chinese companies or protecting their own companies from Chinese investors. On Wednesday, the UK Prime Minister Boris Johnson announced that he was going to introduce a bill in parliament that would protect those British companies which are important from the point of view of national security, but are in a difficult financial situation. In this case, the government itself will buy these companies. According to Mr. Johnson, measures that “guarantee that we protect our technological base” should be introduced.

In early April, the German authorities tightened the rules that protect German companies from being absorbed by investors from non-EU countries; later, similar rules were introduced in France. Among the countries that have recently introduced certain measures to counter acquisition of local businesses by foreign companies, are also Japan and India.